Many of us have learned that regularly setting aside money is the key to achieving long-term financial success. Therefore, many of us have opened a savings account and cut our expenses in order to be able to put away ₹10,000 each month in our savings accounts.
At first glance, it seems like this is the financially responsible action to take, one that will lead to financial independence. However, there may be an unintended consequence of saving so much; i.e., that this behaviour is possibly preventing you from becoming true wealthy.
For example, let’s look at Rohan, a 30-year-old marketing professional who has saved ₹10,000 per month into his savings account for the past five years. Today, he has ₹6 lakh in his account — a lot of money by most standards. That said, after checking the price of the automobile he had always dreamed of buying, he was shocked to find that it costs ₹10 lakh. What he had “saved” ultimately didn’t keep pace with inflation and other factors that erode the value of money over time.
The cold reality is that simply saving money will not make you rich. Inflation, low interest rates, and missed opportunities can all chip away at the money you earn. Wealthy individuals do not merely save money; instead, they use the money they earn to make money.
So, how do wealthy individuals use the same ₹10,000 per month as most people do, but create wealth rather than just savings?
The Subtle Dangers of Staying in Your Comfort Zone
Savings may appear to be the most reasonable option; it’s predictable, safe, and comfortable. Seeing your bank balance increase each month provides a feeling of control and security. However, there is a silent threat that lurks behind that comfort. The purchasing power of your savings diminishes by erosion due to inflation while your savings “increase” on paper.
Think about it: if you are saving ₹10,000 per month for 10 years, at the end of that time you will have ₹12 lakh in your savings account (the interest earnings being negligible). That figure appears impressive. However, with an average annual inflation rate of 6%, the purchasing power of that ₹12 lakh will only be able to purchase approximately ₹6.7 lakh in today’s market.
On the other hand, if you had “invested” the exact same amount in a mutual fund that earned a 12% return, your investment would have grown to over ₹22 lakh.
This is the true price you pay when you choose to play it safe. While the saver protects what he/she has, the investor grows what he/she has. The difference between a saver and an investor is not the return they achieve on their investments, but rather how effectively they allow their money to work for them.
Why the Wealthy Don’t Just Save, They Invest
The reason wealthy people do not simply “save” is because the money that sits still will ultimately lose its ability to create value. So, what do the wealthy do with their money? They put their money to work. Every single rupee that wealthy individuals earn has a job. Its job is to grow, compound and create additional rupees.
Asha and Meera are two friends who both have monthly salaries of ₹60,000. Each week, Asha saves ₹2,500 in her savings account. Meanwhile, Meera uses her weekly ₹2,500 to invest through a Systematic Investment Plan (SIP) in a diversified mutual fund (assumed return of 12%). After ten years, Asha has approximately ₹13 lakh. In contrast, after ten years, Meera has over ₹25 lakh – nearly double that amount earned by Asha. The only reason for this significant disparity was that Meera realised that wealth does not come from the act of “saving” but rather from consistent investing and allowing the magic of compounding to occur.
Rather than focusing on how much money can be saved by cutting back on expenses, the wealthy build assets that produce income such as stocks, bonds, real property, or side businesses. The wealthy understand that while savings provide comfort for today, it is investing that provides security for the future.
How Your Money Grows Using Compound Interest
Compound interest is the way in which you can use your consistent, relatively small investment and turn that investment into an enormous amount of money. Once you put money into an account (for instance), your earnings will create additional income – this new income will then also create additional income. This process creates a snowball effect as your money grows consistently.
To demonstrate how compound interest works, assume you are investing ₹10,000 per month at a 12% annual rate and after 20 years you will have approximately ₹1 crore. Now, if you had started investing ₹10,000 ten years prior and were investing for 30 years, that same ₹10,000 would be worth approximately ₹3.5 crore. What made the huge difference was the time you gave to compounding to build the wealth – not how much you invested each month.
That is why smart high net worth individuals are not always chasing short-term gains nor are they trying to predict when the best time to buy/sell will be. High net worth individuals realise that building wealth does not happen overnight; it happens over time and with the help of compounding interest due to their patient and consistent investing habits.
Start With A Little Money And Invest It Right Away
Most people delay beginning their investments because they believe they will require a lot of money in order to do so. In fact, the way to build wealth has nothing to do with how much money you invest initially but rather when you begin. Therefore, even a modest SIP (Systematic Investment Plan) of ₹5,000 or ₹10,000 per month can turn into a substantial sum of money if given sufficient time. The trick is to start right now.
Let’s take another example. If you are 25 years old, and for 30 years you invest ₹10,000 per month, and earn an average annual rate of return of 12%, then you would have approximately ₹3.5 crores by the time you are 55.
However, if you delay this by 10 years and begin investing at age 35, you would have only approximately ₹1 crores. That means that waiting for 10 years cost you about ₹2.5 crores — simply because you did not begin early.
Therefore, do not wait until “you can earn more” or “you can save more.” There is no perfect day or time to begin your investment. It should be today. Every month that you delay, you miss out on the compounding effect that can be building your future wealth quietly.
Saving an amount of ₹10,000 every month seems to be good, but will not lead to wealth. The inflation causes the idle money to reduce; the investment leads to compounding and growth of that idle money. The wealth is not by the savings but by the time when we start investing. Stop keeping money in the bank — let’s make it work for us, grow and create our financial freedom.